MNI EXCLUSIVE: China 2020 Growth May Fall Below 5.5%: Advisors

     BEIJING (MNI) - The coronavirus outbreak may shave China's Q1 growth by as

much as a full percentage point from last quarter to 5% as knock-on effects in

the crucial services industry are amplified, clouding the outlook for full-year

2020, according to advisors close to the government interviewed by MNI.

     "Growth could register 5.6% to 5.7% (this year) if the situation is

contained this month and contingency policies are enforced effectively and in a

timely fashion. If not, GDP could drop below 5.5%," said Zhang Ming, a senior

fellow at the Institute of World Economic and Politics under the Chinese Academy

of Social Sciences.

     While services, accounting for about 60% of growth last year, have so far

received the biggest impact, disruptions to supplies and transport are also

beginning to curtail manufacturing production, which normally would have resumed

following the Chinese New Year holiday, other advisors said.

     Services were hit hard before the extended holiday ended on Feb. 2 as

authorities nationwide ordered non-essential businesses to shutter and told

residents to stay at home. In the first seven days of the holiday alone, the

three biggest consumer sectors, movies, catering and tourism, lost over CNY1

trillion in revenue, according to Evergrande Research Institute.

     --WORST CASE

     "The authorities should now prepare for the worst case that 6% growth may

not be reached given that the duration of the virus outbreak remains uncertain,"

added Yu Yongding, a former member of the PBOC monetary policy committee. Yu had

previously urged the government to keep a 6% target for GDP growth this year.

     The authorities should take all measures necessary to ensure supplies for

industry, Yu stressed.

     Most factories will not resume production before Feb. 10, following the

extension of the holiday in different provinces.

     Small and medium-sized companies may struggle to pay salaries and meet debt

repayments, or even to survive, said Xu Hongcai, deputy director of the Economic

Policy Commission of the China Association of Policy Science.

     --DEMAND MAY RECOVER

     But demand for houses, cars and durable goods should recover once the

outbreak retreats, said Zhang Bin, head of global macroeconomic research at the

Institute of World Economics and Politics at the Chinese Academy of Social

Sciences. Consumption and economic activities could return to normal by March if

the outbreak comes under control in February, he said.

     Other advisors also expressed optimism on long-term growth. Growth numbers

should not be overemphasised so long as employment is ensured, said Zhu

Baoliang, chief economist at China's State Information Center.

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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